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How interest rates affect us


How interest rates affect us

Thoughts for someone new to understanding finance. Fighting the fear to learn it with analogies and simplicity.

Does our increase in income annually cover the effects of inflation? Not so much in jobs as wage growth is mostly out of the average worker's control, businesses are usually able to increase the cost of their goods and services accordingly, at least those not in a price competitive industry

I suppose that depends on where you live, the current state of affairs was quite scattered when I looked through the worlds central banks set rate of interest in countries all over the world, some with double digits, shocker and some negative, like Japan, which is trying hard to get people to borrow money and theoretically grow the economy.

 As a country, the more you can borrow the more you can increase your productivity, or perhaps buy assets in other countries (that produce more than the interest rate)

 The money of today is borrowed (fiat money), a less confusing way to think about this would be saying all money is rented, from the bank, so like a house we use the money and the interest we pay is the rent. 

 Much better right, so when the rent is low, you rent another house and sublet it to others for a bit more, but when the rent goes up and you can't cover your costs you've gotta give up the other place, with this at large scale the central interest rates cause a cycle in economies.
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